It is all too easy when running a busy company to overlook the importance of having a shareholder buyout agreement. There are many reasons why a shareholder would want to leave the company, and if you have no buyout agreement in place this can cause many problems. If a shareholder wishes to be bought out, there is no contract that defines how much the company should pay him or how much.
Karen Edwards, Commercial Solicitor, says “A properly drafted agreement will provide an amicable separation between the shareholder and the company.”
A shareholder buyout agreement should address the following issues
- whether a departing shareholder must be bought out
- who can purchase the departing shareholder’s stock
- what price will be paid for the shareholder’s interest in the company
- what events could trigger a buyout
Events that may cause a shareholder to leave could be
- retirement of shareholder • a dispute between shareholders
- disability or illness
- personal bankruptcy
- paying a divorce settlement
- an offer from an outsider to purchase the shareholder’s interest
Other matters that should be considered to be included in an agreement are
- where one shareholder wishes to sell to a third party and another does not
- the death of a shareholder
- veto rights • option to transfer individual’s shares to a family trust without the approval of other shareholders
- agreement by selling shareholder not to compete with your company
For a free initial meeting please call 01202 499255 and Karen or a member of her team will be happy to discuss any questions you may have.
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